CAMELs Drive Down SIF Reserve

NCUA Chairman Debbie Matz and Board Member Michael Fryzel stuck to a controversy-free agenda during the agency’s October board meeting last week. Among the news was a report that improving CAMEL ratings resulted in a $147.2 million reduction in reserves during the third- quarter for National Credit Union Share Insurance Fund.

Chief Financial Officer Mary Ann Woodson said the fund’s reserve balance fell from $606.6 million as of June 30 to $484.9 million as of Sept. 30. Of the $485 million in reserves, $171 million is set aside for specific reserves, with the remaining $314 million tagged for nonspecific reserves, she said.

Woodson reported that as of Sept. 30, 382 credit unions had CAMEL codes of 4 or 5, a decrease of 17. The most notable decrease was in the $100 million to $500 million asset category, where 10 credit unions improved their position. CAMEL 4 and 5 credit unions represent 2.8% of insured shares and $26.3 billion in assets, Woodson said.

The number of CAMEL code 3 credit unions also improved during the third quarter, with Woodson reporting 1,639 credit unions receiving the designation, down from 1,679 as of June 30. CAMEL 3 credit unions represent nearly 14% of insured shares and $116.5 billion in industry assets, she said.

Sixteen credit unions have failed so far this year, resulting in nine liquidations, six of which involved purchase and assumptions of remaining assets, and seven assisted mergers.

The share insurance fund reported a 1.32% equity ratio as of Sept. 30. Answering a question from NCUA Chairman Debbie Matz, Woodson added that she expects the NCUSIF to have a 1.30% equity ratio at year end, with any excess over that statutory requirement transferred to offset corporate stabilization fund debt.

The low interest environment is taking its toll on the share insurance fund’s investment portfolio, as the fund saw four investments worth a total of $400 million mature during the third quarter, with rates ranging from 1.08% to 3.87%. They were replaced by five new investments worth $458 million, which will earn much less, between 0.84% and 1.64%, Woodson said.

Federally insured credit unions improved their net position in the Temporary Corporate Credit Union Stabilization Fund in September to a $4.356 billion deficit thanks to $792 million in special assessments, Woodson reported. The corporate fund also gained $160.5 million during the third quarter from the sale of assets held by the NCUA’s asset management estates and another $19.58 million from fee revenue off the NCUA guaranteed notes, securities formed from corporate legacy assets and sold to investors.

Because the Board’s third seat is empty, following former Board Member Gigi Hyland’s departure Oct. 5, Democrat Matz and Republican Fryzel are forced to unanimously agree on any proposed rules or actions until a replacement is appointed and confirmed by the Senate. As a result, the 20-minute meeting produced no surprises.

In addition to approving the financial reports, the Matz and Fryzel also approved a proposed rule to extend the time allowed to accept a fast track to low-income designation that was offered to 1,003 credit unions in August. To date, 676 credit unions have accepted the offer.

Matz said the decision was prompted by feedback from credit unions that reported they needed more time to contemplate the offer and meet with volunteers than the original 30-day window allowed.

Matz and Fryzel also voted unanimously to approve a bid by the $379 million BMI Federal Credit Union to convert from a multiple-SEG charter to a community charter. Because the Columbus, Ohio-based credit union’s new community charter would include more than 1 million people, it required board approval.

Matz said she was impressed by the credit union’s commitment to serving the entire Columbus community, specifically its convenient locations, financial literacy program, payday loan program and a nearly 50% increase in its marketing budget.

The 27,458-member credit union will serve an eight-county area with five centrally located full-service facilities, Moore said.

Board Member Michael Fryzel questioned Office of Consumer Protection Director Kent Buckham about the fate of nine SEGs the credit union currently serves that aren’t located in the new geographical area. Buckham said existing members can retain their accounts, but no new members can join from the companies. However, Buckham reassured Fryzel other credit unions would be able to provide services to the groups. Fryzel asked Buckham to provide a report in one year showing how well BMI has made use of the conversion.